MSFT: Will Sinofsky’s Departure ‘Pick Up the Slack’?

By Tiernan Ray

Shares of Microsoft (MSFT) are down 91 cents, or 3%, at $27.08, after the company late yesterday said its head of the division that makes Windows, Steven Sinofsky, will leave immediately, turning over the reins to the duo of Julie Larson-Green, a user interface design expert, and Tami Reller, the division’s CFO.

Most bulls are taken aback just like the bears, though they are inclined to defend the prospects of Windows 8 and the Microsoft Surface tablet, major achievements for the company on Sinofsky’s watch.

However, from the tone of the reports, though there is a suggestion parts of the Windows ecosystem lagged under Sinofsky:

Walter Pritchard, Citigroup: Reiterates a Buy rating and a $35 price target, calling this akin to “changing quarterbacks in the middle of the playoffs.” “we had assumed Sinofsky (with all his known pluses and minuses), having spearheaded the new vision for Windows, would be there to see the execution through. We view this change as a negative, as execution in Windows has been good under Sinofsky’s leadership and a change either signals or could cause issues at this critical time […] Teamwork and collaboration within Microsoft is increasingly important when up against Apple that brings a complete solution, but products must be high quality and on time. Microsoft seems to have chosen teamwork, assuming the deep engineering bench can pick up the slack. We note several examples where Microsoft could have coordinated better internally with Win8 including developer APIs that changed until RTM, an embedded Office for WinRT release that shipped as a “preview”, lack of major first party games for Win 8 (where is Halo RT?) and hardware OEMs that were kept in the dark on Surface and to some extent WinRT development overall […] Julie Larson-Green will take over development. She was one of Sinofsky’s direct reports and a well-known user interface expert. Tami Reller will assume all business operations, increasing her duties from finance and marketing of Windows.”

Rick Sherlund, Nomura Equity Research: Reiterates a Buy rating and a $37 price target. “We hold Sinofsky in high regard as a technical visionary and his ability to deliver complex products on a timely basis. Sinofsky had previously driven successful Office releases, and the turn-around of Windows 7 after Vista, and we are of the view that the move is a loss to Microsoft. We believe this also signals that Mr. Ballmer has no plans to turn over the reins as Microsoft’s CEO for the next several years, despite press speculation to the contrary. We think the move will weigh on the stock near-term. We don’t think the move is a reflection on the success of Windows 8 one-month after its release.

Michael Turits, Raymond James: Reiterates an Outperform rating. “While investors will ask if Sinofsky’s departure is a negative sign for the Windows 8 launch, that seems unlikely given W8 launched just over two weeks ago. In fact with the launch done and developers now focused on the next product cycle, we believe this was viewed as the right time for a leadership transition. While respected for shipping product on time, we believe Sinofsky was not viewed as equally successful in managing relationships with other top executives, customers, partners and developers, and that these issues in the end blocked his path forward. There has also been speculation that Sinofsky did not manage the relationships well with hardware partners as Microsoft announced that it would be rolling out the Microsoft Surface tablet based on its own competing hardware and that it would offer a non-Intel (ARM-based) version of the OS. Post the W8 launch priorities are likely shifting from just delivering the software to managing developer and partner relationships and building the universe of applications across multiple devices that will likely be the key to the adoption and commercial success of Window 8, Windows Phone 8, and both Microsoft and partner hardware-requiring skill sets that again we believe were not viewed as Sinofsky’s strengths.”

Isreal Hernandez, MKM Partners: Reiterates a Neutral rating and a $32 price target. “We view the unexpected dismissal of Mr. Sinofsky as a clear negative for the stock as he was seen as a highly competent executive within Microsoft and at one point a potential heir to Mr. Ballmer. Any negative newsflow from this announcement may also contaminate consumer perceptions regarding Windows 8, contributing to delayed upgrades. We maintain our Neutral rating.”

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There are 3 comments

NOVEMBER 13, 2012 11:04 A.M.

s randall wrote:

What were they unhappy about? Quality? Lack of market acceptance? Was he e-mailing Ballmer's wife?

I'm guessing it's that they produced the wrong product.

NOVEMBER 13, 2012 12:31 P.M.

techy46 wrote:

The timing is shocking but it's not nearly as negative as the market's reaction. I suspect that Sinofsky was burnt out much like Apple's Forstall and wants more time to do his won thing and get out of the political games. Forstall and Sinfsky both have amassed small fortunes of around $40m each with Sinofsky holding 1.2 million shares of Microsoft stock. Unlike Forstall who sold all his Apple stock last May, Sinofsky was just granted another 400,000 shares. If you've been making over $2 million a year and have a nest egg of almost $40 million why not say goodbye I wnat to spend time with my family and do something more interesting than playing politics with Ballmer and friends.

NOVEMBER 13, 2012 2:44 P.M.

Paul wrote:

Where are these analysts still getting mid-to-high $30's targets from? Are they completely unaware what's happening to PC sales? W8's ability to take any share in tablets is still unproven. Office on alternate platforms is going to be face severe pricing pressure. And WP8 continues to be a market failure. So where exactly is future growth going to come from? Certainly not IEB or Online. Even $32 seems ridiculous. MS looks like it will have a tough time increasing profit year over year. Nobody is going to pay a premium for a company that is being disrupted.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.